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India Spending Too Much on Subsidies, Opposition’s Shourie Says

Sept. 30 (Bloomberg) -- India’s government is spending too much on subsidies and putting excessive pressure on the central bank to solve economic woes, according to Arun Shourie, a former Cabinet member in the main opposition party.

A higher subsidy bill is the main cause of the fiscal deficit and a slump in the rupee, Shourie said in a Bloomberg TV India interview broadcast today. He criticized the government for relying on monetary policy alone to fight inflation and revive growth. Shourie was the minister for asset sales, telecommunications and information technology for the Bharatiya Janata Party-led administration in power from 1998 to 2004.

“The country cannot afford these things and it is the job of government to talk the complete truth to the people,” Shourie said of subsidies. “We cannot do anything about the deficit so we turn to monetary policy. That is not the instrument by which food inflation and stuff can be fought.”

Indian Prime Minister Manmohan Singh’s second term in office has been marred by graft scandals, the weakest growth in a decade and capital outflows that contributed to the rupee’s 12 percent slide against the dollar this year. Economic expansion will slow to 4 percent this fiscal year from a decade-low 5 percent in the 12 months ended March, according to HSBC Holdings Plc.

Projected spending on a subsidy program ranging from diesel to food and fertilizers will decline about 11 percent to 2.2 trillion rupees ($35 billion) in 2013-2014, according to budget documents. A bill passed this year that expands the world’s biggest food program for the poor will cost about $20 billion in a full fiscal year, government estimates show.

Investors Disappointed

The government plans to trim the fiscal deficit to 4.8 percent of gross domestic product by March 2014, from 4.9 percent, to help damp inflation and avert a sovereign ratings downgrade.

A mood of “disappointment bordering on despair” lingers in India right now, Shourie said. Even Indian companies are no longer enthusiastic about investing in the country, he said.

The national election that must be held before May will be fought on governance, with voters evaluating the honesty, competency and willingness of main leaders to work in the national interest, Shourie said.

“People do not want the country to be in this trough,” Shourie said. “Manmohan Singh has made the case for governance by his non-governance.”

To contact the reporter on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net

To contact the editor responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net

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